Thursday, 3 May 2012

Why the "Memorandum" Will not be Changed

By my count, every single party running in
the current Greek elections is running against some aspect of the “Memorandum”
(Greek: μνημόνιο). The most extreme
parties are the smaller ones, such as LAOS, who state that they will expel the
Troika’s monitoring team from Greece and form a grand coalition of southern
European states to force the northern states to invest in “development.” Others
on the left promise worker ownership of state assets (translation: nationalisation)
and, at the extreme left, exit from the Eurozone.

Even the two main parties are hard-pressed
to translate their promises of “resistance” or a better policy mix. Antonis
Samaras gave a town hall meeting-style event at Lavrio yesterday. He was asked
by a civil servant at the Ministry of Economics what could be done to avert the
promised lay-off of 150,000 public sector workers. It was an answer he ducked
with electoral boilerplate: that we need to re-deploy, hire some, allow natural
departures to occur, etc.

PASOK has taken a different tack, promising
an exit from the “Memorandum” (translation: an end to austerity) in 3 years:
this is legally and financially impossible. The Memorandum stays in place until
the loans are repaid or refinanced.

The reason he ducked the question is
because the Eurozone creditors, ECB and IMF have put strict conditions on the
disbursement of the bail-out packages. These can be seen on the Ministry
of Finance’s website in English. These conditions have been approved by the
Greek parliament with a majority vote, although of course certain politicians
will no doubt claim they were not informed, or lied to, or tricked, or they did
not read the Memorandum even while they voted for it.

These conditions were also the product of
negotiations between the three parties supporting the Papademos government
(PASOK, ND, LAOS). They carry the personal signature of two of these leaders,
Samaras and Venizelos. LAOS withdrew from the government and voted against,
except two MPs who subsequently defected to ND.

Parenthesis: to suggest, as Mr.
Karatzaferis did in his recent press conference, that he was not aware of the
conditions of the second bail-out, or doesn’t today understand its
conditionality structure, is pure hypocrisy. He was involved in every session
of its negotiation. He did, however, withdraw from the government before voting
against it.

If we look at the conditionality in the
second bail-out, there are a number of clauses which many people, providing
they actually read it, will support:

· Reduction of the public sector
through headcount reduction, most of which is through attrition, early
retirement and a hiring freeze

· Reduction in public spending on
generic and branded pharmaceuticals and pharmacist margins

The irony is that while many of these
conditions actually promote smaller government and a free(er) market economy, many
of those who profess themselves to be liberals are against them.

The objective economic and restructuring problems
that the government faces, however, are manifest:

· The way in which many reforms
have been implemented have reduced middle-class and working-class pensions and
wages to unsustainable rates, particularly given the cost of living, poor
quality of public sector services, the low starting point of most pensions and
wages, and high taxation. This has had the effect of driving hundreds of
thousands of people into abject poverty and wage slavery, given that bank loans
have remained at current values.

· The reforms have not been
prioritized or implemented correctly, giving the impression that while the
government sector remains intact, the private sector is suffering. Nothing
could be further from the truth. The government has made efforts to improve
state operations, and the total headcount has already declined significantly.
Yet many initiatives have been stalled (some due to objective complexity, some
due to political manipulation). In fact, had interest and emergency social
spending paid by the government not doubled between 2010 and 2012, Greece would
be largely in line with its deficit reduction targets at the present time.

· There are no victories to speak
of which the average citizen can understand or related to. At the same time,
the economic cycle continues to deteriorate, with business closures and
unemployment increasing. PSI, which is the largest single debt restructuring in
history, and which represents a major achievement, is ignored or misunderstood
by both voters and politicians.

· By front-loading cuts in
expenditure and higher taxes, accompanied with the longer-term loss of
competitiveness and the shorter-term recession, the government is exacerbating
both the GDP decline, higher unemployment and lower wages. Unfortunately, this
is inevitable (absent nationalisation or expropriation of assets) given Greece’s
fiscal situation.

No amount of pre-election promises change
the fact that Greece has signed these conditions, and will be expected to
adhere to them by its creditors. While minor points may be negotiated, no one
is counting on a full renegotiation, or changes to any of the core points. To
suggest otherwise is to engage in either deliberate misinformation or very
wishful thinking.

We should not forget that the bail-out
funds have been granted in their large majority by European taxpayers from
other Eurozone countries. Their tax income (through sovereign lending) is
paying for the continued operation of the Greek government, including the
payment of pensions, healthcare costs, wages, and every other spending line. Some
of these countries are actually borrowing at a higher rate and lending Greece
at a lower rate, so not only are they increasing their liabilities, but losing
money on the loans to Greece in the process.

Should a new political constellation now
emerge and say that Greece will not stick to its promises, despite the fact
that its European partners have already complied with theirs (PSI has taken
place, the large majority of the two bailouts has been disbursed), then Greece
truly has no place in the Eurozone or the European Union.

It would be a betrayal of epic proportions,
and would establish the reputation of Greece and the Greeks for
generations to come in terms I prefer not to write on this page.

The root causes of the Greek debt crisis
remain the same: high public spending and high tax evasion. This has been
leavened by all the other issues we are familiar with: corruption, nepotism,
recycling political incompetents, a dysfunctional justice system, etc.

These are purely Greek domestic issues and
Greek outcomes, and they have to be solved in Greece according to its European
obligations. The sooner this is accepted and resolved, the sooner the crisis
will end.

Subscribe via email

Comments on the Blog

I will post any and all comments to this blog, providing they respond to a specific post in a relevant manner, do not contain profanity or ad hominem attacks, and otherwise contribute to civilised discourse. If you do post a comment, please include your email if you wish a response - Blogger does not provide email addresses otherwise.